Annual report pursuant to Section 13 and 15(d)

Financing Agreements

v3.19.3
Financing Agreements
12 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Financing Agreements Financing Agreements
 
 
September 30,
 
2019
 
2018
$375 senior unsecured notes, net of discount (1)
$
370.1

 
$

$150 senior unsecured notes, net of discount (2)
149.7

 
149.3

$100 Series A Notes (3)
99.7

 
99.6

$900 revolving credit facility (excluding outstanding letters of credit)

 
95.7

Total debt
619.5

 
344.6

Less: current portion

 

Total long-term debt
$
619.5

 
$
344.6

 
(1)  Includes debt issuance costs of $4.3 at September 30, 2019.
(2) Includes debt issuance costs of $0.2 and $0.4 at September 30, 2019 and September 30, 2018.
(3) Includes debt issuance costs of $0.3 and $0.4 at September 30, 2019 and September 30, 2018.

The following table summarizes the scheduled maturities of long-term debt for 2020 through 2024:
 
Amount
2020 (1)
$
150.0

2021

2022

2023

2024

 
(1)  These notes are classified as Long-term debt within the Consolidated Balance Sheets. See below for further information.

Third Amended and Restated Credit Agreement

The Company has in place a revolving credit facility of up to $900 (which may be expanded, subject to the approval of the lenders, by an additional $450) in an aggregate principal amount (the “Revolver”). The Revolver is governed by the Third Amended and Restated Credit Agreement dated August 28, 2019 and subsequently amended on October 8, 2019 (the “Credit Agreement”), by and among the Company and certain of its affiliates, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, which amended and restated in its entirety the Company’s Second Amended and Restated Credit Agreement. The Credit Agreement extended the maturity date of the Revolver to August 28, 2024 and provided for two new term loans (undrawn at September 30, 2019) in aggregate principal amounts of up to $500 and $225 (the “Term Loan Facilities”). New deferred financing costs related to the Revolver were $1.1, which along with existing unamortized costs of $2.0, are being amortized to interest expense over the remaining term of the Revolver.
Borrowings under the Revolver bear interest at variable rates plus a margin amount based upon our leverage. There is also a facility fee based upon our leverage.  All borrowings under the Revolver mature upon expiration, and are therefore classified as Long-term debt in the Consolidated Balance Sheets. The Revolver is an unsubordinated obligation of Hillenbrand and ranks equally in right of payment with all our other existing and future unsubordinated obligations.

With respect to the Revolver, as of September 30, 2019, we had $7.1 in outstanding letters of credit issued and $892.9 of maximum borrowing capacity, all of which was immediately available based on our most restrictive covenant at September 30, 2019.  The weighted-average interest rates on borrowings under the Revolver were 2.54%, 1.83%, and 1.40% for 2019, 2018, and 2017.  The weighted average facility fee was 0.12%, 0.15%, and 0.23% for 2019, 2018, and 2017.

The lenders’ commitments to advance term loans to the Company under the Term Loan Facilities are subject to customary closing conditions, including the concurrent closing of the Company’s previously announced acquisition of Milacron, as contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of July 12, 2019, by and among the Company, Milacron, and Bengal Delaware Holding Corporation. The proceeds of the Term Loan Facilities will be used solely to pay a portion of the consideration payable in connection with proposed acquisition of Milacron, fees and expenses related to the proposed acquisition, and to repay certain indebtedness of Milacron and its subsidiaries on closing of the proposed acquisition.
Once borrowed, the $500 term loan will mature on the fifth anniversary of the date on which it is borrowed, subject to quarterly amortization payments (equal to 5% of the original principal amount of the term loan in each of years 1 and 2, 7.5% in each of years 3 and 4, and 10% in year 5) and the $225 term loan will mature on the third anniversary of the date on which it is borrowed, subject to quarterly amortization payments (equal to 5% of the original principal amount of the term loan in each of years 1 and 2, and 7.5% in year 3). The term loan commitments will bear a ticking fee of 0.15% on the amount of the commitments commencing 60 days after the signing dates (August 28, 2019 for the $500 term loan and October 8, 2019 for the $225 term loan) until the date the term loans are funded or the commitments under the Term Loan Facilities are terminated. The $500 term loan will, once borrowed, accrue interest, at the Company’s option, at the LIBO Rate or the Alternate Base Rate (each as defined in the Credit Agreement) plus a margin based on the Company’s leverage ratio, ranging from 1.00% to 1.75% for term loans bearing interest at the LIBO Rate and 0.0% to 0.75% for term loans bearing interest at the Alternate Base Rate. The $225 term loan will, once borrowed, accrue interest, at the Company’s option, at the LIBO Rate or the Alternate Base Rate (each as defined in the Credit Agreement) plus a margin based on the Company’s leverage ratio, ranging from 0.875% to 1.625% for term loans bearing interest at the LIBO Rate and 0.0% to 0.625% for term loans bearing interest at the Alternate Base Rate.
Second Amended and Restated Credit Agreement

On December 8, 2017, the Company entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”), which was amended and restated in its entirety on August 28, 2019 by the Credit Agreement. The Second Amended and Restated Credit Agreement extended the Company’s former credit agreement, which provided for a revolving credit facility of up to $700.0 in aggregate principal amount and a term loan in an original principal amount of $180.0. Additionally, the Second Amended and Restated Credit Agreement increased the maximum principal amount available for borrowing under the Revolver from $700.0 to $900.0. In connection with the Second Amended and Restated Credit Agreement, the Company repaid the prior $180.0 term loan in full with borrowings under the Revolver. The weighted-average interest rate on the prior $180.0 term loan was 2.60% for 2018.

Senior Unsecured Notes

On September 25, 2019, the Company issued $375.0 of senior unsecured notes due September 2026 (“2019 Notes”).  The 2019 Notes bear interest at a fixed rate of 4.5% per year, payable semi-annually in arrears beginning March 2020.  The 2019 Notes were issued at a discount of $0.6, resulting in an initial carrying value of $374.4.  We are amortizing the discount to interest expense
over the term of the 2019 Notes using the effective interest rate method, resulting in an annual interest rate of 4.53%.  Deferred financing costs associated with the 2019 Notes of $4.3 are being amortized to interest expense on a straight-line basis over the term of the 2019 Notes.  The 2019 Notes are unsubordinated obligations of Hillenbrand and rank equally in right of payment with all of our other existing and future unsubordinated obligations. In conjunction with the issuance of the 2019 Notes, we terminated our interest rate swaps associated with the forecasted debt issuance. See Note 2 for further information on the termination of interest rate swaps.

In July 2010, the Company issued $150 of senior unsecured notes (“2010 Notes” and, together with the 2019 Notes, the “Notes”) due July 2020.  The 2010 Notes bear interest at a fixed rate of 5.5% per year, payable semi-annually in arrears beginning January 2011.  The 2010 Notes were issued at a discount of $1.6, resulting in an initial carrying value of $148.4.  We are amortizing the discount to interest expense over the term of the 2010 Notes using the effective interest rate method, resulting in an annual interest rate of 5.65%.  Unamortized deferred financing costs associated with the 2010 Notes of $0.2 are being amortized to interest expense on a straight-line basis over the remaining term of the 2010 Notes.  The 2010 Notes are unsubordinated obligations of Hillenbrand and rank equally in right of payment with all of our other existing and future unsubordinated obligations. Upon maturity in July 2020, the Company expects to refinance the 2010 Notes on a long-term basis.  The Company has the intent and believes it has the ability to refinance the 2010 Notes due to expected available borrowing capacity under the Revolver, although the financing source ultimately used to refinance the 2010 Notes may be different.  As such, these obligations continue to be classified as Long-term debt within the Consolidated Balance Sheets.

Subject to certain limitations, in the event of a change of control (as defined in the 2010 Notes and in the indenture governing the 2019 Notes), the Company will be required to make an offer to purchase the applicable Notes at a price equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to but excluding the date of repurchase. Additionally, if the Company does not consummate the acquisition of Milacron, on or prior to July 6, 2020 or, if prior to such date, the Merger Agreement is terminated, the 2019 Notes will be subject to a special mandatory redemption at a price equal to 101% of the aggregate principal amount of the 2019 Notes, plus accrued and unpaid interest on the 2019 Notes to, but not including, the special mandatory redemption date (as defined in the indenture governing the 2019 Notes). In addition, both the 2010 Notes and 2019 Notes are redeemable with prior notice at a price equal to par plus accrued interest and a make-whole amount.

Senior Unsecured Bridge Facility

The Company entered into a commitment letter on July 12, 2019, pursuant to which JPMorgan Chase Bank, N.A. committed to fully provide a 364-day senior unsecured bridge facility (the “Bridge Facility”) in an aggregate principal amount of $1.1 billion. The commitments under the Bridge Facility commitment letter were reduced to zero upon the issuance of the 2019 Notes and with the commitments for the term loans under the Term Loan Facilities, and the Bridge Facility commitment letter was terminated. Deferred financing costs related to the Bridge Facility were $5.6, which were fully amortized to interest expense during the year ended September 30, 2019.

Series A Notes

On December 15, 2014, we issued $100.0 in 4.60% Series A unsecured notes (“Series A Notes”) pursuant to the Private Shelf Agreement, dated as of December 6, 2012 (as amended, the “Shelf Agreement”), among the Company, Prudential Investment Management, Inc. (“Prudential”) and each Prudential Affiliate (as defined therein) that became a purchaser thereunder. The Series A Notes are unsecured, mature on December 15, 2024, and bear interest at 4.60% payable semi-annually in arrears. The Company may at any time upon providing notice, prepay all or part of the Series A Notes at 100% of the principal amount prepaid plus a make-whole amount (as defined in the Shelf Agreement). Unamortized deferred financing costs of $0.3 related to the Series A Notes are being amortized to interest expense over the remaining term of the Series A Notes.

On December 19, 2014, March 24, 2016, December 8, 2017, and September 4, 2019, the Company and certain of the Company’s domestic subsidiaries entered into amendments to the Shelf Agreement. The latest amendment conformed certain terms of the Shelf Agreement with those contained in the Credit Agreement. The Shelf Agreement governs our Series A Notes, but our ability to issue new notes under the Shelf Agreement expired in March 2019.

L/G Facility Agreement

On March 8, 2018, the Company entered into the €150.0 Syndicated Letter of Guarantee Facility Agreement by and among the Company and certain of its affiliates, the lenders party thereto, and Commerzbank Finance & Covered Bond S.A., acting as agent (the “L/G Facility Agreement”). The L/G Facility Agreement permits the Company and certain of its subsidiaries to request that one or more of the participating lenders issue up to an aggregate of €150.0 in unsecured letters of credit, bank guarantees or other surety bonds (collectively, the “Guarantees”). On September 4, 2019, the Company and certain of its subsidiaries entered into an
Amendment and Restatement Agreement (the “L/G Amendment”), which amends the L/G Facility Agreement. The L/G Amendment aligns certain covenants, definitions and other provisions in the L/G Facility Agreement with those under the Credit Agreement.

The Guarantees carry an annual fee that varies based on the Company’s leverage ratio. The L/G Facility Agreement also provides for a leverage-based commitment fee assessed on the undrawn portion of the facility. The L/G Facility Agreement matures in December 2022 but can be extended or terminated earlier under certain conditions. Unamortized deferred financing costs associated with the L/G Facility Agreement of $1.1 are being amortized to interest expense over the term of the L/G Facility Agreement.

In the normal course of business, the Process Equipment Group provides to certain customers bank guarantees and other credit arrangements in support of performance, warranty, advance payment, and other contractual obligations.  This form of trade finance is customary in the industry and, as a result, we maintain adequate capacity to provide the guarantees.  As of September 30, 2019, we had credit arrangements totaling $305.7, under which $252.2 was utilized for this purpose.  These arrangements included the facilities under the L/G Facility Agreement and other ancillary credit facilities.

Covenants related to current Hillenbrand financing agreements

The Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement contain the following financial covenants: a maximum ratio of consolidated indebtedness (which excludes the 2019 Notes until the Milacron acquisition is consummated or the Merger Agreement is terminated) to EBITDA (as further defined in the agreements, “Leverage Ratio”) of 3.5 to 1.0 including the application of cash as a reduction of Indebtedness (subject to certain limitations); a maximum Leverage Ratio resulting from an acquisition in excess of $75.0 of 4.0 to 1.0 for a period of three consecutive quarters following such acquisition; and a minimum ratio of EBITDA (as defined in the agreements) to interest expense of 3.0 to 1.0. Additionally, the Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement provide the Company with the ability to sell assets and to incur debt at our international subsidiaries under certain conditions.

All obligations of the Company arising under the Credit Agreement, the 2010 Notes and 2019 Notes, the Shelf Agreement, the Series A Notes, and the L/G Facility Agreement are fully and unconditionally, jointly and severally, guaranteed by certain of the Company’s domestic subsidiaries.

The Credit Agreement, the Shelf Agreement and the L/G Facility Agreement each contain certain other customary covenants, representations and warranties and events of default. The indentures governing both the 2010 Notes and 2019 Notes do not limit our ability to incur additional indebtedness. They do, however, contain certain covenants that restrict our ability to incur secured debt and to engage in certain sale and leaseback transactions. The indentures also contain customary events of default. The indentures provide holders of the Notes with remedies if we fail to perform specific obligations. As of September 30, 2019, we were in compliance with all covenants and there were no events of default.